BURSTING BUBBLES

Regulators to Silicon Valley: Get Over Yourselves

The leader of the government’s top financial regulatory agency is not as impressed with the tech industry’s billion-dollar unicorns as Silicon Valley is itself.

In a sobering speech Thursday at Stanford Law School, Securities and Exchange Committee head Mary Jo White warned that the pressure on companies to pass the vaunted $1 billion valuation mark—and to hold onto their capital once they reach it—has led start-ups to be less than transparent with investors and to dodge federal regulations.

“They do not appear to be an endangered species,” White said of unicorns, according to her prepared remarks. “Beyond the hype and the headlines, our collective challenge is to look past the eye-popping valuations and carefully examine the implications of this trend for investors, including employees of these companies, who are typically paid, in part, in stock and options.”

All of the hype surrounding Silicon Valley start-ups, White suggested, has pushed some companies to misreport their financials in order to reach benchmarks set by investors and closely watched by the media. “In the unicorn context, there is a worry that the tail may wag the horn,” she said. “The concern is whether the prestige associated with reaching a sky high valuation fast drives companies to try to appear more valuable than they actually are.”

This is not the first time White has admonished Silicon Valley for continuing to blow hot air in an already frothy market. “You have to make sure you don’t have some very aggressive promoters taking advantage of that climate. [Investors] may get very excited from an article or a blog and invest their money,” she said in a speech earlier this year. “You worry about them not getting sufficient or accurate information.”

White’s concerns are not unfounded. A number of Silicon Valley’s brightest starts have had to change course, pull back, or even shut down completely as the seemingly endless availability of easy capital over the last several years has begun to dry up, forcing more companies to make money, not just raise it.

In case Silicon Valley’s increasingly anemic funding environment wasn’t punishment enough, S.E.C. enforcement division director Andrew Ceresney told the Stanford Law group Thursday that even though he’s based in Washington, he’s got his eye on them.
“You can’t say we don’t focus on the West Coast,” he in a panel discussion following White’s speech, according to Bloomberg. “Not that you want us, but we are here.”